MAGT 303 Chapter 1 Book PDF

PART 1 Decision to Become an Entrepreneur Owlet Baby Care, Inc. CHAPTER 1 Introduction to Entrepreneurship 29 27 Getting Personal with...

PART 1 Decision to Become an Entrepreneur Owlet Baby Care, Inc. CHAPTER 1 Introduction to Entrepreneurship 29 27 Getting Personal with SUPERJAM Founder FRASER DOHERTY Dialogue with Fraser Doherty BEST ADVICE I’VE RECEIVED Go with your passion. Makes it so much easier! I love bikes, and it makes my job infinitely easier. MY BIGGEST WORRY AS AN ENTREPRENEUR That we’re not innovating fast enough to keep ahead of the competition WHAT I DO WHEN I’M NOT WORKING Drive my 40-year-old VW camper van round the countryside! MY FAVORITE SMARTPHONE APP SuperJam’s Recipe App MY FIRST ENTREPRENEURIAL EXPERIENCE Hatching chickens on top of the TV, age 10, and selling their eggs FAVORITE BAND ON MY SMARTPHONE LIST The Smiths FAVORITE PERSON I FOLLOW ON TWITTER Has to be Stephen Fry. Photo Credit: Fraser Doherty CHAPTER 1 Introduction to Entrepreneurship MyLab Entrepreneurship OPENING PROFILE ✪Improve Your Grade! SUPERJAM If your instructor is using MyLab Entrepreneurship, visit www.pearson.com/mylab/entrepreneurship for The Classic Entrepreneurial Story videos, simulations, and writing exercises. Web: http://www.superjam.co.uk Facebook: SuperJam 100% Fruit Spread SuperJam’s Recipe App G rowing up in Scotland, Fraser Doherty spent his childhood coming up with ideas for new products. Not all his money-making ideas were a success—indeed, his fledgling egg-selling enterprise ended abruptly when a fox ate all his chickens— but he had a hunger to set up a business. At the age of 14, Doherty gave jam-making a try. He had always LEARNING OBJECTIVES enjoyed the jam his grandmother made and thought there might be an After studying this chapter you should be opportunity here. After making a batch and selling it door-to-door, he ready to: discovered people really liked it, and Doherty’s jam enterprise gradu- ally spread into local shops and farmers’ markets. A feature in the 1. Describe entrepreneurship, corporate entrepreneurship, and the characteristics Edinburgh Evening News brought in even more orders from further of entrepreneurial firms. afield. 2. Discuss three main reasons people After resolving to expand the business, Doherty did some research decide to become entrepreneurs. and found that sales of jam had been in decline for the past few 3. Identify four main characteristics of decades. Jam had acquired an old-fashioned image and people pre- successful entrepreneurs. ferred healthier alternatives on their toast. 4. Explain five common myths regarding entrepreneurship. The solution the young Scottish entrepreneur came up with was a jam for the modern world. Doherty’s SuperJam would be made using 5. Describe the three types of start-up firms. traditional recipes, completely from fruit juice. The jars would contain 6. Discuss the changing demographics of no sugar and no artificial flavoring. He also boldly resolved to target entrepreneurs in the United States. supermarkets to sell his products. 7. Discuss the positive effects of Fraser faced a number of challenges. At this point, he was making entrepreneurship and entrepreneurial hundreds of jars of jam every week in his parents’ kitchen. Apart from firms on economies and societies. the fact his parents were struggling to get in there to cook their dinner, 8. Explain the entrepreneurial process. the business clearly couldn’t grow any further. 9. Learn how understanding entrepreneur- ship and the entrepreneurial process can At the age of 17, he was in no position to start a factory and did facilitate your career success. not have any money to pay a design agency to create a brand. He did not have a clue about how to approach supermarkets either. All he had was a passion about his product and a great recipe. The first supermarket Fraser approached was Waitrose on a “meet the buyer” day. Fraser pitched his idea to the senior jam buyer—he liked it but said it had a long way to go. He advised Fraser to set up a production facility and create a brand before coming back with a well-priced product. 29 30    PART 1 | DECISION TO BECOME AN ENTREPRENEUR Fraser set off around the United Kingdom trying to convince food manufacturers to believe in his 100 percent fruit jam. He told them that he didn’t have any money to invest, but if they took the long-term view, then they too would reap the benefit. He did the same with a string of advertising agencies to persuade them to help him create a brand. Eventually, after two years of persistence, Doherty finally convinced a factory and an advertising agency to work with him. SuperJam is exhibited in the National Museum of Scotland as an “Iconic Scot- tish Brand” alongside Irn-Bru and Tunnock’s and Baxters, two other brands synony- mous with Scotland. In 2010, Fraser shared his jam-making secrets with the world in the SuperJam Cook; this was followed in 2011 by his autobiography and jam story, SuperBusiness. Since 2010, Fraser has been the entrepreneur-in-residence at the London Metropolitan University, where he delivers presentations and lectures on aspects of entrepreneurship. Doherty has kept close to his customers throughout SuperJam’s meteoric rise and is conscious of the part technology and, in particular, social networks play in his business and in maintaining a meaningful conversation with his customers. Against a backdrop of digital social networking, SuperJam Tea Parties are about as far removed from the virtual world as you could imagine. The company runs these events for elderly people who live alone, primarily in care homes or sheltered accom- modation. To date, they have run over 350 events across the United Kingdom. The mix of live music, dancing, a heavy dose of scones, and SuperJam attract up to 600 people to each event. From humble beginnings working at his kitchen table to growing his entrepreneurial venture, Fraser now supplies over 2,000 supermarkets around the world with Super- Jam and has won a variety of awards for the range. Fraser has now scooped up over 20 prestigious awards, including Bighearted Scotland Business Person of The Year (2009), Smarta 100 Award (2010), and Inc. magazine’s 30 under 30 Award (2010). He also made the finals for “Times Young Power List” (2011), NatWest Enterprise Awards Finalist (2012), and Ben & Jerry’s “Join Our Core” Finalist (2012).1 I n this first chapter of your book about the successful launching of an entre- preneurial venture or firm, we define entrepreneurship and discuss why some people decide to become entrepreneurs. We then consider successful entrepreneurs’ characteristics, the common myths surrounding entrepreneur- ship, the different types of start-up firms, and the changing demographics of entrepreneurs in the United States and other nations as well. We then describe entrepreneurship’s importance, including the economic and social impact of new firms as well as the importance of entrepreneurial firms to larger businesses. To close the chapter, we introduce you to the entrepreneurial process. This process, which we believe is the foundation for successfully launching and operating a start-up firm, is the framework we use to present the book’s materials to you.  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    31 Introduction to Entrepreneurship There is tremendous interest in entrepreneurship around the world. Although this statement may seem bold, there is evidence supporting it, some of which is provided by the Global Entrepreneurship Monitor (GEM). GEM, which is a joint research effort among several international universities and the Interna- tional Council for Small Business, tracks entrepreneurship in 112 countries, including the United States. Of particular interest to GEM is total early stage entrepreneurial activity (TEA), which consists of businesses that are just being started and businesses that have been in existence for less than three and a half years. A sample of the rate of total early-stage entrepreneurial activity in countries included in the GEM study is shown in Table 1.1. Although the high- est rates of entrepreneurial start-up activities occur in low-income countries, where good jobs are not plentiful, the rates are also impressive in high-income countries such as Germany (4.7 percent), United Kingdom (6.9 percent), and the United States (11.9 percent). What the 11.9 percent means for the United States is that almost 1 out of every 8 1/2 American adults is actively engaged in starting a business or is the owner/manager of a business that is less than three-and-a-half-years old.2 The GEM study also identifies whether its respondents are starting a new business to take advantage of an attractive opportunity or because of necessity to earn an income. The majority of people across the countries the GEM study follows are drawn to entrepreneurship to take advantage of attractive opportu- nities, rather than starting out of necessity. In fact, in countries with a strong inclination for innovation like Germany and the United States, the number of people who start businesses to pursue an opportunity outnumber the people who are starting a business out of necessity 3.4 to 1.0.3 One criticism of entrepreneurship, which is often repeated in the press, is that the majority of new businesses fail.4 It simply isn’t true. The often used sta- tistic that 9 out of 10 businesses fail in their first few years is an exaggeration. TABLE 1.1 Rates of Early-Stage Entrepreneurial Activity (Ages 18 to 64) Percent of Population Starting Country a New Business Argentina 17.7% Brazil 21.0% Chile 25.9% China 12.8% Finland 6.6% Germany 4.7% Philippines 17.2% Spain 5.7% United Kingdom 6.9% United States 11.9% Source: Based on D. Kelley, S. Singer, and M. Herrington, Global Entrepreneurship Monitor 2015/6 Global Report (Babson, Universidad del Desarrollo, Universiti Tun Abdul Razak, Tecnologico de Monterrey, and International Council for Small Business, 2015/6). 32    PART 1 | DECISION TO BECOME AN ENTREPRENEUR In the United States, according to the Bureau of Labor Statistics, over half the businesses started are still in existence five years later.5 The number drops to just over a third after 10 years, but some of the businesses disappeared because they were successful and were sold or were acquired by another firm. While overall these figures are heartening, the percentage of firms that do fail shows that a motivation to start and run a business isn’t enough; indeed, motivation must be coupled with a solid business idea, good financial management, and effective execution to maximize chances for success. In this book, we’ll dis- cuss many examples of entrepreneurial firms and the factors separating suc- cessful new ventures from unsuccessful ones. Many people see entrepreneurship as an attractive career path. Think about your friends and others you know. In all probability, you are acquainted with at least one or two people who want to become an entrepreneur—either now or at some point in the future. The number of books dealing with start- ing one’s own business is another indication that entrepreneurship is growing in popularity. Amazon.com, for example, currently lists over 58,510 books dealing with entrepreneurship and over 80,686 books concerned with small businesses. The number of books on entrepreneurship is up from 36,900 just three years ago. What Is Entrepreneurship and Why Is It Important? LEARNING OBJECTIVE The word entrepreneur derives from the French words entre, meaning “between,” 1. Describe entrepreneurship, and prendre, meaning “to take.” The word was originally used to describe people corporate entrepreneurship, who “take on the risk” between buyers and sellers or who “undertake” a task and the characteristics of such as starting a new venture.6 Inventors and entrepreneurs differ from each entrepreneurial firms. other. An inventor creates something new. An entrepreneur assembles and then integrates all the resources needed—the money, the people, the business model, the strategy, and the risk-bearing ability—to transform the invention into a viable business.7 Entrepreneurship is defined as the process by which individuals pursue opportunities without regard to resources they currently control for the purpose of exploiting future goods and services.8 Others define it more simply, seeing entrepreneurship as the art of turning an idea into a business. In essence, an entrepreneur’s behavior finds him or her trying to identify opportunities and putting useful ideas into practice.9 The tasks called for by this behavior can be accomplished by either an individual or a group and typically require creativity, drive, and a willingness to take risks. Kirsten Blowers, the subject entrepreneur in the chapter’s “Opening Profile,” exemplifies all these qualities. Kirsten saw an opportunity to create a new type of women’s clothing boutique and online store and a new type of shopping experience for the women in her target market. She risked her career by passing up alternatives to work on Riffraff full time, and she’s now working hard to put Riffraff in a position to deliver creative and useful products to its customers.10 In this book, we focus on entrepreneurship in the context of an entrepreneur or team of entrepreneurs launching a new business. However, ongoing firms can also behave entrepreneurially. Typically, established firms with an entre- preneurial emphasis are proactive, innovative, and risk-taking. For example, Google is widely recognized as a firm in which entrepreneurial behaviors are clearly evident. Larry Page, one of Google’s cofounders, is at the heart of Google’s entrepreneurial culture. With his ability to persuade and motivate others’ imagi- nations, Page continues to inspire Google’s employees as they develop innova- tive product after innovative product. To consider the penetration Google has  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    33 with some of its innovations, think of how often you and people you know use the Google search engine, Gmail, Google Maps, Google Earth, or Google Home. Google is currently working on a bevy of far-reaching innovations, such as a virtual reality platform for Android and self-driving cars. Similarly, if you were to study Facebook’s or Dropbox’s actions you would quickly recognize their ability to grow and succeed. This growth and success reveals a history of entrepre- neurial behavior at multiple levels within the two firms. In addition, many of the firms traded on the NASDAQ (the largest U.S. stock market with nearly 3,100 companies listed), such as Apple, Zynga, Facebook, and Amgen are commonly thought of as entrepreneurial firms. As we mentioned, existing firms too can act entrepreneurially. In this sense, established firms with an orientation toward acting entrepreneurially practice corporate entrepreneurship.11 All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial. The position of a firm on this continuum is referred to as its entrepreneurial intensity.12 As we noted, entrepreneurial firms are typically proactive innovators and are not averse to taking calculated risks. In contrast, conservative firms take more of a “wait and see” posture, are less innovative, and are risk averse. One of the most persuasive indications of entrepreneurship’s importance to an individual or a firm is the degree of effort undertaken to behave entrepre- neurially. Firms with higher entrepreneurial intensity regularly look for ways to cut bureaucracy. For example, Virgin Group, the large British conglomer- ate, works hard to keep its units small and instill in them an entrepreneurial spirit. Virgin is one of the most recognized brands in Britain and is involved in businesses as diverse as airlines and music. In the following quote, Sir Richard Branson, the founder and CEO of Virgin, describes how his company operates in an entrepreneurial manner: Convention... dictates that “big is beautiful,” but every time one of our ventures gets too big we divide it up into smaller units. I go to the deputy managing director, the deputy sales director, and the deputy marketing director and say, “Congratula- tions. You’re now MD [managing director], sales director and marketing director—of a new company.” Each time we’ve done this, the people involved haven’t had much more work to do, but necessarily they have a greater incentive to perform and a greater zeal for their work. The results for us have been terrific. By the time we sold Virgin Music, we had as many as 50 subsidiary record companies, and not one of them had more than 60 employees.13 Why Do People Become Entrepreneurs? The three primary reasons that people become entrepreneurs and start their LEARNING OBJECTIVE own firms are to be their own boss, pursue their own ideas, and pursue finan- 2. Discuss three main reasons cial rewards. people decide to become entrepreneurs. Be Their Own Boss The first of these reasons—being one’s own boss—is given most commonly. This doesn’t mean, however, that entrepreneurs are difficult to work with or that they have trouble accepting authority. Instead, many entrepreneurs want to be their own boss because either they have had a long-time ambition to own their own firm or because they have become frustrated working in traditional jobs. The type of frustration that some entrepreneurs feel working in conventional jobs is exemplified by Wendy DeFeudis, the founder of VeryWendy, a company that makes customized social invitations. Commenting on how her experiences 34    PART 1 | DECISION TO BECOME AN ENTREPRENEUR An entrepreneurial career is full of possibilities. These three young entrepreneurs are starting a graphic design business. They are passionate about website design, logo design, and business branding. Pressmaster/Shutterstock working for herself have been more satisfying than working for a large firm, DeFeudis remarked: I always wanted to be my own boss. I felt confined by the corporate structure. I found it frustrating and a complete waste of time—a waste to have to sell my ideas to multiple people and attend all kinds of internal meetings before moving forward with a concept.14 Some entrepreneurs transition from a traditional job to owning their own business more gradually, as shown by a decision to initially operate their firm on a part-time basis. While this approach isn’t possible in all situations, by starting a business part time individuals can gain valuable experience, tuck away the money they earn, and find out if they really like the business before deciding to leave their job. In some businesses, such as catering or financial planning, it takes time to build a client list. Some entrepreneurs will time their departure from their job with the point in time at which their client list is large enough and profitable enough to support a full-time business.15 Pursue Their Own Ideas The second reason people start their own firms is to pursue their own ideas.16 Some people are naturally alert, and when they recognize ideas for new prod- ucts or services, they have a desire to see those ideas realized. Corporate entre- preneurs who innovate within the context of an existing firm typically have a mechanism for their ideas to become known. Established firms, however, often resist innovation. When this happens, employees are left with good ideas that go unfulfilled.17 Because of their passion and commitment, some employees choose to leave the firm employing them in order to start their own business as the means to develop their own ideas. This chain of events can take place in noncorporate settings, too. For exam- ple, some people, through a hobby, leisure activity, or just everyday life, recog- nize the need for a product or service that is not available in the marketplace. If the idea is viable enough to support a business, they commit tremendous time  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    35 and energy to converting the idea into a part-time or full-time firm. In Chapters 2 and 3, we focus on how entrepreneurs spot ideas and determine if their ideas represent viable business opportunities. Many entrepreneurs experience tremendous satisfaction when their entre- preneurial idea catches on, and they see the positive results it creates. An example is Marco Zappacosta, the founder of Thumbtack. Thumbtack is an online platform that allows people to quickly locate local service providers, such as photographers, house painters, and piano teachers. Zappacosta’s insight at the time Thumbtack was founded in 2009 was that all across America there were local service providers struggling to find new clients, and ordinary people looking for service providers they could trust. Commenting on how Thumbtack solves both a big problem but also makes a difference in ordinary people’s lives, Zappacosta remarked: The macro of it (connecting people who need services with people who are willing to provide them) is a big problem and it’s satisfying to work on big things that can have a huge impact. But then what (I) really like—you feel day to day is the stories of impacting individuals, it’s the pest control guy in Brooklyn sending us flowers to say thank you for all the business that we’re now sending him, or the busy mom who is sending pictures of her birthday party that she was able to throw with Thumbtack. That feels great and that’s certainly a bigger part of the motivation that we feel.18 Since its inception, Thumbtack has helped millions of people connect with local service providers and over $1 billion is exchanged through its platform each year.19 Pursue Financial Rewards Finally, people start their own firms to pursue financial rewards. This ­motivation, however, is typically secondary to the first two and often fails to live up to its hype. The average entrepreneur does not make more money than someone with a similar amount of responsibility in a traditional job. The financial lure of entre- preneurship is its upside potential. People such as Jeff Bezos of Amazon.com, Mark Zuckerberg of Facebook, and Larry Page and Sergey Brin of Google made billions of dollars building their firms. Money is also a unifier. Making a profit and increasing the value of a company is a solidifying goal that people can rally around. But money is rarely the primary motivation behind the launch of an entrepreneurial firm. Some entrepreneurs even report that the financial rewards associated with entrepreneurship can be bittersweet if they are accompanied by losing control of their firm. For example, Sir Richard Branson, after selling Virgin Records, wrote, “I remember walking down the street [after the sale was completed]. I was crying. Tears... [were] streaming down my face. And there I was holding a check for a billion dollars.... If you’d have seen me, you would have thought I was loony. A billion dollars.”20 For Branson, it wasn’t just the money—it was the thrill of building the business and of seeing the success of his initial idea. Characteristics of Successful Entrepreneurs Although many behaviors have been ascribed to entrepreneurs, several are LEARNING OBJECTIVE common to the successful ones. Those in new ventures and those who are 3. Identify four main char- already part of an entrepreneurial firm share these qualities, which are shown acteristics of successful in Figure 1.1 and described in the following section. entrepreneurs. 36    PART 1 | DECISION TO BECOME AN ENTREPRENEUR One of the most satisfying things about an entrepreneurial career is bringing products to life that enhance people’s lives. This young woman is enjoying watching a music video provided by an online streaming music service started by two entrepreneurs. Antonio Guillem/Shutterstock FIGURE 1.1 Four Primary Characteristics Passion for Product/customer of Successful the business focus Entrepreneurs Successful entrepreneur Tenacity despite Execution failure intelligence Passion for the Business The number one characteristic shared by successful entrepreneurs is a passion for their business, whether it is in the context of a new firm or an existing business. Frequently, it’s the passion for an idea that gets a business going and keeps it going when times are tough. This sentiment was expressed by Patrick Whaley, the founder of Titin, a company that makes innovative weighted com- pression gear, which some athletes have found useful in training. “I’m passion- ate that there’s a better way to train,” Whaley said. “That’s what inspired me to design and develop this product, and that’s what keeps me going.”21 Recall that Kirsten Blowers, the owner of Riffraff and the subject company of the chapter’s “Opening Profile” remains “passionate about her business” and that this passion influences her daily as she leads her businesses.  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    37 Making a difference in people’s lives is the primary motivator behind many social enterprises, which are often started by people who set aside promising careers to pursue a social goal. This was the case with John Wood, who founded Room to Read and is the author of the book Leaving Microsoft to Change the World. Wood’s deep passion to help children in the developing world caused him to start cashing in small amounts of Microsoft stock to buy books and build schools, even before he left the company. In excerpts from an interview pub- lished by Forbes magazine, Wood said: During my travels, I met so many children in the poorest parts of the world, lacking access to school, books, and libraries, that I began cashing in small amounts of stocks to help them. Two hundred shares of Microsoft stock was enough to build an entire school in rural Nepal.22 Wood eventually left Microsoft to work on Room to Read full time. Since its inception in 2000, Room to Read has served over 10.7 million children, pub- lished 1,295 books, and delivered over 18 million books to young readers, all in developing parts of the world.23 Passion is particularly important for both for-profit and not-for-profit entre- preneurial organizations because although rewarding, the process of starting a firm or building either a profit-making corporation or a social enterprise is demanding. There are five primary reasons passion is important, as reflected in Table 1.2. Each of these reasons reflects a personal attribute that passion engenders. Removing just one of these qualities would make it much more dif- ficult to launch and sustain a successful entrepreneurial organization. A note of caution is in order here: While entrepreneurs should have pas- sion, they should not wear rose-colored glasses. It would be a mistake to believe that all one needs is passion and anything is possible. It is important to be enthusiastic about a business idea, but it is also important to understand its potential flaws and risks. In addition, entrepreneurs should understand TABLE 1.2 Five Primary Reasons Passion Is Important for the Launch of a Successful Entrepreneurial Organization Reason Passion Is Important Explanation 1. The ability to learn and iterate Founders don’t have all the answers. It takes passion and drive to solicit feedback, make necessary changes, and move forward. Needed changes won’t always be obvious. Passion makes the search for the right answers invigorating and fun. 2. A willingness to work hard for an Commonly, entrepreneurs work longer hours than people with traditional jobs. You extended period of time can only do that on a sustained basis if you’re passionate about what you’re doing. 3. Ability to overcome setbacks and It’s rare that an entrepreneur doesn’t experience setbacks and hear many “no’s” from “no’s” potential customers, investors, and others while building an entrepreneurial business or a social enterprise. The energy to continue comes from passion for an idea. 4. The ability to listen to feedback You’ll meet plenty of people along the way—some with good intentions and some on the limitations of your without—who will tell you how to improve your organization and how to improve organization and yourself yourself. You have to be willing to listen to the people with good intentions and make changes if it helps. But you also have to be able to brush aside feedback from people with bad intentions without letting them get you down. 5. Perseverance and persistence Perseverance and persistence come from passion. As an entrepreneur, you’ll have when the going gets tough down days. Building an entrepreneurial organization is fraught with challenges. Passion is what provides an entrepreneur the motivation to get through tough times. Source: Based on A. Sack, “Why Is Passion So Important to a Startup?” A Sack of Seattle blog, https://asack.typepad.com/a_sack_of_ seattle/2010/03/why-is-passion-so-important-to-a-startup.html (posted March 16, 2010, accessed May 22, 2011). 38    PART 1 | DECISION TO BECOME AN ENTREPRENEUR that the most effective business ideas take hold when their passion is consis- tent with their skills and is in an area that represents a legitimate business opportunity. To illustrate the importance of passion, as well as other factors that are critical in determining a firm’s success or failure, we include a boxed feature titled “What Went Wrong?” in each chapter. The feature for this chapter shows how Prim, a laundry and pick-up and delivery service, ultimately failed, in part because its founders were not able to remain passionate about their business idea. Product/Customer Focus A second defining characteristic of successful entrepreneurs is a product/­ customer focus. This quality is exemplified by Steven Jobs, the late cofounder of Apple Inc., who wrote, “The computer is the most remarkable tool we’ve ever built... but the most important thing is to get them in the hands of as many people as possible.”24 This sentiment underscores an understanding of the two most important elements in any business—products and customers. While it’s important to think about management, marketing, finance, and the like, none of those functions makes any difference if a firm does not have good products with the capability to satisfy customers. This philosophy is affirmed by Alex Algard, the founder of WhitePages.com. WhitePages.com started in 1997 to provide consumers a free, accurate, and fast online alternative to telephone directory assistance. It is one of the most trusted and comprehensive sources for consumers to quickly find relevant, accurate contact information in North America. When asked how he was able to grow WhitePages.com from a one-person operation in 1997 to the multimillion-dollar company it is today, Algard’s reply reflected not only his feelings about the importance of providing value to both users and customers but also how a com- pany measures if the value is being successfully delivered: The philosophy that we as a company have always stuck to is that everything we build has to provide real value to both our users and customers. The best measure- ment of whether or not we are successful at delivering something valuable is if our customers, advertisers in our case, are willing to pay.25 A product/customer focus also involves the diligence to spot product opportunities and to see them through to completion. The idea for the Apple Macintosh, for example, originated in the early 1980s when Steven Jobs and several other Apple employees took a tour of a Xerox research facility. They were astounded to see computers that displayed graphical icons and pull-down menus. The computers also allowed users to navigate desktops using a small, wheeled device called a mouse. Jobs decided to use these innovations to cre- ate the Macintosh, the first user-friendly computer. Throughout the two and a half years during which the Macintosh team developed this new product, it maintained an intense product/customer focus, creating a high-quality com- puter that is easy to learn, fun to use, and meets the needs of a wide audience of potential users.26 Apple’s early history, and in particular its commitment to building high-quality products, has been portrayed in several movies, including Pirates of the Silicon Valley (2005) and JOBS (2013). Additional examples of product/market focus are provided in an excellent weekly podcast produced by National Public Radio (NPR) called “How I Built This.” Each episode provides an in-depth interview with the founder of a well- known firm, and provides a complete overview of how the firm was built and won customers. Guests have included Joe Gebbie, the cofounder of Airbnb; Angie Hicks, the founder of Angie’s List; Jane Wurwand, the founder of Dermalogica; and Yvon Chouinard, the founder of Patagonia.27  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    39 WHAT WENT WRONG? Prim: How a Lack of Passion and Resolve Can Kill a Business P rim’s idea was to disrupt the laundry industry. A growing number of people in the United States are using laundry services to wash and fold their clothes. The problem with these services is that they are a hassle. In most instances customers have to bag their laundry, in each new market Prim entered. After two months of deliberation, Wu and Cao pulled the plug. While they esti- mated that by constructing their own laundry service they could build a profitable business in 5 to 10 years, with revenues of $10 million to $15 million, it was a direction drop the bag or bags off at the laundry service, and then they simply did not want to pursue. Both were computer pick them up later. Many services have lines at the busiest science students in college and had no direct experi- times of the day, which result in drivers having to wait to ence in the laundry business. In an article published by drop off or pick up their laundry. CNNMoney, Garry Tan, a partner with Y Combinator, Prim launched in mid-2013, after passing through reflecting on why Wu and Cao closed Prim, said, “They the prestigious Y Combinator business accelerator pro- didn’t want to actually have to wash the laundry—they gram earlier that year. Here’s how Prim’s laundry service wanted to be the connector.” worked. A customer bagged her/his laundry, and then went online to choose a pickup and delivery time. The price was $25 for the first bag and $15 for each addi- Questions for Critical Thinking tional bag. The bags would be picked up by a driver recruited by a third-party delivery service. (Rickshaw 1. Why is passion such a critical part of entrepreneurial was the name of the delivery service in the city where success? Prim’s founders were apparently passionate Prim started.) Everything would be back, washed and about building a company but not passionate about folded, later that day or early the next day. No cash the laundry business specifically. In what ways is this changed hands between the customer and the pickup or combination problematic? delivery drivers. Everything was paid for through Prim’s 2. How could Prim’s cofounders have better anticipated website. Prim gained favorable press and early momen- that laundry services would eventually see Prim as tum. When it closed, it was handling 1,000 pounds of siphoning off their own business and be reluctant to laundry a day from 40 clients and was growing. What work with them? went wrong? 3. Rather than employ its own drivers to pick up and Two things went wrong with Prim. First, once Prim deliver laundry for its customers, Prim relied on the use got your clothes, it went from an innovative disruptor to of third-party delivery services. In what ways do you an old-school company. It would take your clothes to a think this approach could have limited Prim’s growth in laundry service and utilize its wash and fold services. other markets? Prim negotiated volume discounts with several laundry 4. San Francisco, the city in which Prim launched, has services; but, the discounts were verbal, not written. What several innovative laundry services. These services Prim didn’t count on was the partnerships going sour. include LaundryLocker, where you drop your clothes While the laundry services were initially receptive to work- in a public locker, Sfwash, a delivery service where ing with Prim, they had their own delivery services and you pay by the pound, and Sudzee, which requires eventually saw Prim as siphoning off their customers and special lockable bags. Spend some time studying revenue. During its short history, Prim churned through LaundryLocker (https://laundrylocker.com), Sfwash three different laundry services. (https://sfwash.com), and Sudzee (https://sudzee. The second thing that went wrong with Prim was a com). Select the service that you think has the most lack of passion and resolve on the part of its founders. potential and explain the rationale for your selection. Faced with the reality that working with local laundry ser- Compare the service to Prim’s approach. vices was a fragile business model, Prim’s founders, Yin Sources: J. P. Mangalindan, “Prim: Anatomy of a Folded Startup,” Yin Wu and Xuwen Cao, had a decision to make. Should CNNMoney, available at https://tech.fortune.com/2014/01/22-prim- they build or lease their own laundry service? This was anatomy-of-a-folded-startup (posted January 22, 2014, accessed a daunting prospect, given the hundreds of thousands March 14, 2014); J. Constine, “Prim Laundry Startup Throws in the of dollars necessary to build and staff a high-volume Towel,” TechCrunch, available at https://techcrunch.com/2014/ laundry wash and fold facility. Even more daunting was 01/06/prim-laundry-shuts-down (posted January 6, 2014, accessed the prospect that this step would need to be repeated March 14, 2014). 40    PART 1 | DECISION TO BECOME AN ENTREPRENEUR Tenacity Despite Failure Because entrepreneurs are typically trying something new, the possibility of failure exists. In addition, the process of developing a new business is somewhat similar to what a scientist experiences in the laboratory. A chemist, for example, typically has to try multiple combinations of chemicals before finding an opti- mal combination that can accomplish a certain objective. In a similar fashion, developing a new business idea may require a certain degree of experimentation before success is attained. Setbacks and failures inevitably occur during this process. The litmus test for entrepreneurs is their ability to persevere through setbacks and failures. An example of the degree of tenacity it sometimes takes to launch a success- ful firm is provided by Jerry Stoppelman and Russel Simmons, the cofounders of Yelp, the popular online review site. The original idea for Yelp, which was founded in 2004, is that when people are looking for a new restaurant, den- tist, or plumber they normally ask their friends for recommendations. Yelp was launched to give people the ability to e-mail a list of their friends and ask for a recommendation. The message included a link that allowed the friend to easily respond. The business plan didn’t work. People started complaining that they were getting too many e-mail messages from friends who often didn’t have a rec- ommendation to provide. Yelp could have died at this point. Instead, Stoppelman and Simmons demonstrated the tenacity it often takes to keep a business alive. Curiously, the one aspect of Yelp’s business plan that did work was the abil- ity to write your own review—a feature that had been included by Stoppelman and Simmons almost as an afterthought. Rather than responding to a friend’s request for a recommendation, people seemed to enjoy sharing information about their favorite restaurant or hair salon without being asked. In 2005, Yelp pivoted and revised its business plan. The new plan dropped the “e-mail your friend idea” and focused on providing a platform for people to proactively write reviews of local businesses. Today, Yelp is one of the most popular review sites on the Internet. It’s also important that entrepreneurs have sufficient tenacity to overcome personal obstacles along with professional ones. An example is Rick and Melissa Hinnant, the founders of Grace & Lace, a company that makes lacey leg warm- ers for women. In 2010, the couple experienced a tragedy when they lost an unborn child. While Melissa was in the hospital, she had a vision of crocheting her unborn child a blanket, which kindled in her a desire to sew. In the fall of 2011, she made her first pair of lacy leg warmers, and everywhere she went, people would stop her and ask her where she got them. That experience led to Grace & Lace, which is now a full-blown women’s apparel company.28 In 2013, Grace & Lace appeared on Shark Tank, and received an offer from Barbara Corcoran. Reflecting on the episode, and the tenacity that Rick and Melissa Hinnant exhibited overcoming the loss of a child, Corcoran said: The best pitch I heard last season (Season 5), was from Grace & Lace, designers of lacy boot socks and leg warmers. When Melissa and Rick Hinnant burst onto the Shark Tank set, they exuded both the passion and street smarts that I know get all good entrepreneurs to the finish line. When they announced that they had $800,000 in sales in their first year in business, they got the attention of all the sharks. But what got my attention was Melissa and Rick’s backstory—a story of extreme resilience in the face of personal failure. The story they told proved that they were great entrepreneurs who knew how to take a hit and keep on ticking.29 Execution Intelligence The ability to fashion a solid idea into a viable business is a key character- istic of successful entrepreneurs. Commonly, this ability is thought of as ­execution intelligence.30 In many cases, execution intelligence is the factor  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    41 that determines whether a start-up is successful or fails. An ancient Chinese saying warns, “To open a business is very easy; to keep it open is very difficult.” The ability to effectively execute a business idea means developing a busi- ness model, putting together a new venture team, raising money, establishing partnerships, managing finances, leading and motivating employees, and so on. It also demands the ability to translate thought, creativity, and imagination into action and measurable results. As Jeff Bezos, the founder of Amazon.com, once said, “Ideas are easy. It’s execution that’s hard.”31 For many entrepreneurs, the hardest time is shortly after they launch their firm. This reality was expressed by Jodi Gallaer, the founder of a lingerie company, who said, “The most chal- lenging part of my job is doing everything for the first time.”32 To illustrate solid execution, let’s look at The Bouqs Company, an online flower delivery service, which is the subject of Case 11.1 later in the book. The Bouqs was cofounded in 2012 by Jason Tabis and J. P. Montufar, largely out of their frustration with the state of the online cut-to-order flower deliv- ery industry. At that time, about 90 percent of the flowers sold in the United States came from either Colombia or Ecuador, and passed through multiple layers of distributors and wholesalers before they reached the end consumer. In addition, most orders that were placed online were fulfilled by a local flo- rist, who may or may not have the exact flowers the customer ordered. Tabis and Montufar took on the industry, primarily by creating an advantage via execution intelligence. Rather than utilizing conventional distribution channels, they established direct relationships with flower growers in Columbia, Ecua- dor, Chile, and across the United States and Canada. Flowers ordered via The Bouqs website were cut the day they were ordered and were shipped directly from the farm, allowing the flowers to reach the customer in 2–4 days rather than 10–14. This shortened timeframe resulted in providing customers flowers that were fresher and more attractive than competing offerings. Other aspects of ordering flowers online were improved. The selection available was carefully curated, so as to not overwhelm the customer, and only flowers that were avail- able were displayed. Pricing was transparent, with all selections priced at $40 which included the product and shipping, with no hidden fees. In addition, The Bouqs only sourced flowers from farms that practiced sustainable, eco-friendly farming.33 The result: The Bouqs is a thriving cut-to-order online flower delivery firm, with both consumer and corporate clients. It has raised over $19 million in funding since 2012.34 One way early-stage companies learn execution intelligence is by partici- pating in start-up incubator and accelerator programs. In each chapter, we provide a “Savvy Entrepreneurial Firm” feature that presents you with an example of a tool or technique that well-managed entrepreneurial firms use to improve their performance. In the nearby “Savvy Entrepreneurial Firm” feature, we discuss the benefits of participating in a start-up incubator or accelerator program. Common Myths About Entrepreneurs There are many misconceptions about who entrepreneurs are and what moti- LEARNING OBJECTIVE vates them to launch firms to develop their ideas. Some misconceptions develop 4. Explain the five com- because of the media covering atypical entrepreneurs, such as a couple of col- mon myths regarding lege students who obtain venture capital to fund a small business that they entrepreneurship. grow into a multimillion-dollar company. Such articles rarely state that these entrepreneurs are the exception rather than the norm and that their success is a result of carefully executing an appropriate plan to commercialize what inherently is a solid business idea. Indeed, the success of many of the entre- preneurs we study in each chapter’s “Opening Profile” is a result of carefully executing the different aspects of the entrepreneurial process. Let’s look at the most common myths and the realities about entrepreneurs. 42    PART 1 | DECISION TO BECOME AN ENTREPRENEUR SAVVY ENTREPRENEURIAL FIRM Start-Up Incubators and Accelerators: A Smart Way of Gaining Access to Mentors, Partners, Investors, and Other Critical Start-up Resources T he number of start-up incubator and accelerator pro- grams in the Unites States continues to grow. Incu- bators are organizations that provide start-ups with shared operating space. They are sponsored by universi- ties, city or county governments, or nonprofit organiza- and accelerators have become, the following is a list of start-up incubators and accelerators in five American cities. You can identify the start-up incubators or accel- erators in your area by speaking to local entrepreneurs or investors or by conducting a simple Google search. tions. Incubators also provide start-up businesses access Capital Innovators is a start-up accelerator located in to networking opportunities, mentors, and shared equip- St. Louis. It provides tech start-ups $50,000 in seed fund- ment. Incubators typically do not ask for equity from their ing, office space, access to weekly networking events, participants and do not provide seed funding. They were and follow-on funding opportunities. very popular in the 1980s and remain an important part of Excelerator Labs is an intensive summer accelerator in the entrepreneurial ecosystem in many areas. Chicago. It selects 10 companies every spring to partici- Accelerators are a newer concept. They are mostly pate in a 13-week intensive summer program. The program for-profit organizations that offer a small amount of seed is unique in that it attracts mentors from across the country funding in exchange for small equity positions in the com- who work with the participants on a one-on-one basis. panies that participate in their programs. Most accelerator Capital Factory is an Austin, TX start-up incubator/ programs admit start-ups in cohorts, and put the start-ups accelerator and coworking space. It also hosts meet-ups through a 10- to 15-week intensive program. The accel- and other events for aspiring entrepreneurs. Its accelerator erator typically offers free office space, perks such as free program offers mentorship opportunities and connects its WiFi and web hosting, weekly meetings with mentors, entrepreneurs with investors. In 2015, more than 50,000 and coaching on how to put together an effective inves- entrepreneurs, programs, and designers were involved in tor pitch. The programs normally cumulate with a “Demo Capital Factory programs and events. Day” which provides the participants the opportunity to EnterpriseWorks is part of the University of Illinois’ pitch their business ideas to a group of investors, men- Research Park. It’s a start-up incubator that hosts early- tors, and reporters. The better programs will have 200 + stage tech firms that are commercializing research emerg- investors present at their Demo Days. The greatest advan- ing from the university’s labs. It is a hub of activities and tage of getting into either an incubator or accelerator pro- its clients include start-ups focused on fields such as gram is the mentorship opportunities they provide. They chemical sciences, biotechnology, software development, are also fertile places for entrepreneurs to meet potential and material sciences. cofounders, business partners, and investors. Food-X is a New York City-based business accelerator The two most well-known accelerator programs are Y that is focused on launching food-related businesses. Its Combinator and TechStars. Y Combinator is located in the three-month program provides up to $50,000 in seed funding, Silicon Valley. It provides $120,000 in funding for 7 percent coworking space with other food entrepreneurs, and access equity in each start-up it admits. Its participants are admitted to a world-class network of food companies, investors, and in two, three-month sessions per year. It doesn’t offer office press. Each week, participants meet with 3–5 expert mentors space. Instead, its program includes “office hours” where to test, validate, and accelerate their food ventures. its start-up founders meet individually and in groups with Y Combinator partners for advice. Founders also participate in weekly dinners where top-flight guests from the Silicon Val- ley ecosystem speak to the founders. Y Combinator’s motto Questions for Critical Thinking is “Make Something People Want.” TechStars is similar to Y 1. If you were starting a new venture, do you think Combinator in that it is a three month program. It provides you would benefit from participating in a business $18,000 in funding for a 6 percent equity stake. Started in incubator or accelerator program? If so, what do you Boulder, CO, it has expanded and now has 26 programs think the primary benefits would be? that are organized around cities and themes. TechStars has 2. Find an example of a start-up incubator or accelerator offices in Atlanta, Chicago, Boulder, New York City, London, program at the college or university you are attending, Seattle, and several other cities. Examples of the themes on in the town in which you live, or in a nearby city. which it focuses include Alexa (voice-powered technology), Describe the program. Which one of the programs Internet of Things, music, and retail. mentioned in this feature does it resemble the most? While admission to Y Combinator and TechStars is 3. If you have a promising business idea, what can you very competitive, there are a growing number of start-up do while you’re in college to improve your chances of incubators and accelerators in American cities. Most are being admitted to a prestigious start-up incubator or accessible to hard-working start-up founders with promis- accelerator program when you graduate? ing business ideas. Many focus on a particular industry or 4. Make a list of the types of mentors that a participant sector, such as food, medical devices, software, mobile, or in a start-up incubator or accelerator program might technology. To illustrate how prevalent start-up incubators encounter.  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    43 Myth 1: Entrepreneurs Are Born, Not Made This myth is based on the mistaken belief that some people are genetically predisposed to be entrepreneurs. The consensus of many hundreds of stud- ies on the psychological and sociological makeup of entrepreneurs is that entrepreneurs are not genetically different from other people. This evidence can be interpreted as meaning that no one is “born” to be an entrepreneur and that everyone has the potential to become one. Whether someone does or doesn’t is a function of environment, life experiences, and personal choices.35 However, there are personality traits and characteristics that are commonly associated with entrepreneurs; we list these in Table 1.3. These traits are developed over time and evolve from an individual’s social context. For exam- ple, studies show that people with self-employed parents are more likely to become entrepreneurs. 36 After witnessing a father’s or mother’s indepen- dence in the workplace, an individual is more likely to find independence appealing.37 Similarly, people who personally know an entrepreneur are more than twice as likely to be involved in starting a new firm as those with no entrepreneur acquaintances or role models.38 The positive impact of know- ing an entrepreneur is explained by the fact that direct observation of other entrepreneurs reduces the ambiguity and uncertainty associated with the entrepreneurial process. Myth 2: Entrepreneurs Are Gamblers A second myth about entrepreneurs is that they are gamblers and take big risks. The truth is, entrepreneurs are usually moderate risk takers, as are most people.39 This finding is affirmed by The Hartford’s 2015 Small Business Suc- cess Study in which a total of 79 percent of the participants rated themselves as conservative rather than risky.40 The idea that entrepreneurs are gamblers originates from two sources. First, entrepreneurs typically have jobs that are less structured, and so they face a more uncertain set of possibilities than man- agers or rank-and-file employees.41 For example, an entrepreneur who starts a social network consulting service has a less stable job than one working for a state governmental agency. Second, many entrepreneurs have a strong need to achieve and often set challenging goals, a behavior that is sometimes equated with risk taking. TABLE 1.3 Common Traits and Characteristics of Entrepreneurs A moderate risk taker Optimistic disposition Persuasive A networker Promoter Achievement motivated Resource assembler/leverager Alert to opportunities Creative Self-confident Self-starter Decisive Tenacious Energetic Tolerant of ambiguity A strong work ethic Visionary Lengthy attention span 44    PART 1 | DECISION TO BECOME AN ENTREPRENEUR Myth 3: Entrepreneurs Are Motivated Primarily by Money It is naïve to think that entrepreneurs don’t seek financial rewards. As discussed previously, however, money is rarely the primary reason entrepreneurs start new firms and persevere. The importance and role of money in a start-up is put in perspective by Colin Angle, the founder and CEO of iRobot, the maker of the popular Roomba robotic vacuum cleaner. Commenting on his company’s mis- sion statement, Angle said: Our, “Build Cool Stuff, Deliver Great Products, Have Fun, Make Money, Change the World” (mission statement) kept us (in the early days of the Company) unified with a common purpose while gut-wrenching change surrounded us. It reminded us that our goal was to have fun and make money. Most importantly, it reminded us that our mission was not only to make money, but to change the world in the process.42 Some entrepreneurs warn that the pursuit of money can be distracting. Media mogul Ted Turner said, “If you think money is a real big deal... you’ll be too scared of losing it to get it.”43 Similarly, Sam Walton, commenting on all the media attention that surrounded him after he was named the richest man in America by Forbes magazine in 1985, said: Here’s the thing: money never has meant that much to me, not even in the sense of keeping score.... We’re not ashamed of having money, but I just don’t believe a big showy lifestyle is appropriate for anywhere, least of all here in Bentonville where folks work hard for their money. We all know that everyone puts on their trousers one leg at a time.... I still can’t believe it was news that I get my hair cut at the barbershop. Where else would I get it cut? Why do I drive a pickup truck? What am I supposed to haul my dogs around in, a Rolls-Royce?44 Myth 4: Entrepreneurs Should Be Young and Energetic Entrepreneurial activity is fairly evenly spread out over age ranges. The recent age distribution of business owners, as reported in the Kauffman Index of Startup Activity, is shown in Table 1.4. As you see, the percentage of owners is quite evenly distributed across 4 major age categories. Not suprisingly, given this age distribution, the majoity of business owners have work experience prior to launching a new venture. Although it is important to be energetic, investors often cite the strength of the entrepreneur (or team of entrepreneurs) as their most important criterion in the decision to fund new ventures.45 In fact, a TABLE 1.4 Age Distribution of Business Owners Age Percentage of Business Owners 20–34 24.7 35–44 22.9 45–54 26.6 55–64 25.8 Source: R. W. Fairlie, A. Morelix, E. J. Reedy, and J. Russell, 2015 The Kauffman Index of Startup Activity: National Trends, available at Kauffman_ index-startup_activity_national_trends_2015-1.pdf.  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    45 sentiment that venture capitalists often express is that they would rather fund a strong entrepreneur with a mediocre business idea than fund a strong business idea and a mediocre entrepreneur. What makes an entrepreneur “strong” in the eyes of an investor is experience in the area of the proposed business, skills and abilities that will help the business, a solid reputation, a track record of success, and passion about the business idea. The first four of these five qualities favor older rather than younger entrepreneurs. Myth 5: Entrepreneurs Love the Spotlight Indeed, some entrepreneurs are flamboyant; however, the vast majority of them do not attract public attention. In fact, many entrepreneurs, because they are working on proprietary products or services, avoid public notice. Consider that entrepreneurs are the source of the launch of many of the 3,100 compa- nies listed on the NASDAQ, and many of these entrepreneurs are still actively involved with their firms. But how many of these entrepreneurs can you name? Perhaps three or four? Most of us could come up with Jeff Bezos of Amazon.com, Mark Zuckerberg of Facebook, and maybe Larry Page and Sergey Brin of Google or Elon Musk of Tesla and SpaceX. Whether or not they sought attention, these are the entrepreneurs who are often in the news. But few of us could name the founders of Netflix, YouTube, or DIRECTV, even though we frequently use these firms’ services. These entrepreneurs, like most, have either avoided attention or been passed over by the popular press. They defy the myth that entrepreneurs, more so than other groups in our society, love the spotlight. Types of Start-Up Firms As shown in Figure 1.2, there are three types of start-up firms: salary-substitute LEARNING OBJECTIVE firms, lifestyle firms, and entrepreneurial firms. 5. Describe the three types of Salary-substitute firms are small firms that yield a level of income for their start-up firms. owner or owners that is similar to what they would earn when working for an employer. Dry cleaners, convenience stores, restaurants, accounting firms, retail stores, and hairstyling salons are examples of salary-substitute firms. The vast majority of small businesses fit into this category. Salary-substitute firms offer common, easily available and not particularly innovative products or services to customers. Lifestyle firms provide their owner or owners the opportunity to pursue a particular lifestyle and earn a living while doing so. Lifestyle firms include personal trainers, golf and tennis pros, owners of bed & breakfasts, and tour guides. These firms are not innovative, nor do they grow quickly. Commonly, lifestyle companies promote a particular sport, hobby, or pastime and may employ only the owner or just a handful of people. Entrepreneurial firms bring new products and services to market. As we noted earlier, the essence of entrepreneurship is creating value and then dissemi- nating that value to customers. In this context, value refers to worth, importance, FIGURE 1.2 Salary-Substitute Lifestyle Entrepreneurial Firms Firms Firms Types of Start-Up Firms Firms that basically Firms that provide Firms that bring new provide their owner or their owner or owners products and services owners a similar level the opportunity to to the market by of income to what they pursue a particular creating and seizing would be able to earn lifestyle, and make a opportunities regardless in a conventional job living at it of the resources they currently control 46    PART 1 | DECISION TO BECOME AN ENTREPRENEUR PARTNERING FOR SUCCESS Partnering with College Students via Campus Ambassador and Campus Rep Programs A novel way that start-ups spread the word about their businesses is to create “campus ambassador” or “cam- pus rep” programs. Most campus ambassador and campus rep programs fall somewhere between an intern- ship and a job. The programs vary. Some recruit s­ tudents reps are charged with promoting the company’s products and charity partnerships to students, and earn cash and Flex Watches products for their efforts. Campus reps must be active users of both ­Facebook and Instagram. Applica- tions are available at https://flexwatches.com/campusreps. to promote their brand on campus through an assortment Her Campus Media: Her Campus Media is the num- of events, programs, and social media. Others ask students ber one online community for college women. College to create content, such as YouTube videos, articles for a females are recruited to setup Her Campus Chapters on company’s main website, and Instagram photos of the com- their local campus. The local chapters sign up campus pany’s products being used on their campus. Students often correspondents, who create, edit, and upload content to find these programs to be a great way to build their résumés, their chapter’s website. The content focuses on six cate- get work experience, earn a little extra money, and get their gories of interest to college females: style, beauty, health, foot in the door of an exciting company. Companies that run love, life, and career. Local correspondents work with the campus ambassador or campus rep programs are typically company’s national team to organize Her ­Campus events looking for students who (1) have upbeat personalities, (2) on their campus. Her Campus targets college females are effective communicators, (3) have in-depth knowledge who are interested in journalism, public relations, market- and a love for the product, (4) have effective marketing skills, ing, or entrepreneurship. Information about starting a Her and (5) have the ability to provide insightful feedback and Campus Chapter is available at www.hercampus.com/ advice. Here are examples of three campus ambassador or start-your-own-my-campus-chapter. campus rep programs and how they work. Other companies that run well-regarded campus Apple. Apple Campus Reps work directly with the ambassador or campus rep programs include Chipotle, company’s campus reps’ team to tailor an approach for Victoria’s Secret, CBS Sports, Adobe, Amazon, Rent the evangelizing Apple products on their local campus. Activi- Runway, Prezi, and Monster Energy Drink. ties include planning and conducting workshops on Apple products, creating and distributing flyers and other pro- Questions for Critical Thinking motional materials, and running competitions and events that highlight creative uses of Apple software and hard- 1. As part of your college experience, do you think ware. Apple Campus Reps make roughly $10 to $11 an you would benefit from participating in a campus hour, and work up to 15 hours per week. You can apply for ambassador or campus rep program? Why or why not? the Apple Campus Reps program online at www.apple. 2. In what ways would participating in a campus com/education/campusreps. ambassador or campus rep program help you prepare Flex Watches: Flex Watches are colorful and flexible to own your own business someday? sport watches. The watches come in a variety of colors, and 3. Why do you think companies such as Apple, Flex each color represents a different social or charitable cause. Watches, and Her Campus Media sponsor campus Ten percent of the purchase price of each watch is donated ambassador or campus rep programs? How do the to its corresponding cause. The company’s campus rep pro- companies benefit? gram looks for energetic and socially minded students who 4. What types of start-ups would benefit the most from want to represent Flex Watches on their campus. Campus starting campus ambassador programs? or utility. Entrepreneurial firms bring new products and services to market by creating and then seizing opportunities. Dropbox, Facebook, and Uber are well- known, highly successful examples of entrepreneurial firms. Having recognized an opportunity, the entrepreneurs leading companies of this type create products and services that have worth, are important to their customers, and provide a measure of usefulness to their customers that they wouldn’t have otherwise. One characteristic of entrepreneurial firms, which we explore throughout this book, is that they partner with other firms and organizations, often to obtain the boost they need to realize their full potential. In each chapter, look for the boxed feature titled “Partnering for Success,” which illustrates how entrepre- neurial firms use partnerships to increase their chances for success. The feature in the first chapter of your book discusses how some firms partner with college students via campus ambassador and campus rep programs to spread the word about their business.  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    47 Next, we describe the newly emerging characteristics of today’s entre- preneurs. You may be surprised to learn about the types of individuals who are choosing to become entrepreneurs! While studying these characteris- tics, think about people you know who are accurately described by these characteristics. Do you think any of these people will choose to become entrepreneurs? Changing Demographics of Entrepreneurs Over the past 10 years, the demographic makeup of entrepreneurial firms LEARNING OBJECTIVE has changed in the United States and around the world. Of the 27.9 million 6. Discuss the changing businesses in the United States,46 women, minorities, and seniors own an demographics of entrepre- increasingly larger number of them. This is an exciting development for the neurs in the United States. entrepreneurial sector of the U.S. economy. An area of concern is millennials. Although millennials (people 18–34 years old) express a high degree of inter- est in becoming entrepreneurs, a surprisingly low percentage of people in the ­millennial age range are choosing the entrepreneurial path. There are many exceptions to this trend, such as the young entrepreneurs featured at the begin- ning of each chapter of this book. Women Entrepreneurs While men are still more likely to start businesses than women, the number of women-owned businesses is increasing. According to a study commissioned by American Express OPEN, as of 2016, there were 11.3 million women-owned busi- nesses in the United States. Very impressively, these businesses employ nearly nine million people and generate over $1.6 trillion in annual sales. Between 2007 and 2016, the number of women-owned firms increased by 45 percent, compared to just a 9 percent increase among all businesses. As a result, over the past nine years, the number of women-owned businesses has grown at a rate five times faster than the national average. These are the faces of the entrepreneurs of the future. Collectively they will include more women and will be more ethnically diverse than at any time in the past. Gino Santa Maria/Shutterstock 48    PART 1 | DECISION TO BECOME AN ENTREPRENEUR Women are now the majority owners of 38 percent of U.S businesses, up from 29 percent in 2007. Of the 11.3 million women-owned firms, 44 percent are owned by minorities. This percentage, which has increased dramatically since 2002, includes 1.9 million women-owned firms owned by African Americans, 8.1 percent owned by Asian Americans, and 16.5 percent owned by Latinas. The 10 states home to the greatest number of women-owned businesses are California, Texas, Florida, New York, Georgia, Illinois, Michigan, Ohio, North Carolina, and Pennsylvania. Women-owned firms can be found in every sector of the U.S. economy. Four sectors stand out, and these constitute roughly 6 in 10 women-owned firms (61 percent). These sectors are: Other Services (such as hair and nail salons and pet care businesses), Health Care and Social Assistance (such as child day care and home health care services), Professional/scientific/ technical services (such as lawyers, accountants, and architects), and Adminis- trative Support and Waste Management Services (such as office administrative support and travel agencies).47 The number of groups that support and advocate for women-owned busi- nesses continues to increase. An example of these groups is the National Asso- ciation of Women Business Owners (www.nawbo.org), which provides a forum for women entrepreneurs to share their stories and support and encourage one another.48 Minority Entrepreneurs There has been a substantial increase in minority entrepreneurs in the United States. The most comprehensive statistics are reported by the Minority Busi- ness Development Agency (www.mbda.gov). The most current data available for minority entrepreneurs is 2012, in contrast to the 2016 data available for women entrepreneurs. According to the data, there are eight million minority-owned firms in the United States—a 38 percent increase since 2007. This increase is encouraging. The average gross receipts for minority-owned firms was $58,119, down slightly from 2007. The industry sectors in which minority-owned firms operate are: Healthcare and Social Assistance (13 percent), Administrative Sup- port and Waste Management and Redemption (12 percent), Professional/scien- tific/technical services (10 percent), Construction (9 percent), Retail (8 percent), Transportation and Retailing (7 percent), Real Estate and Leasing (5 percent), and Other (37 percent). (Other is a catch-all for all remaining industries.)49 Similar to women entrepreneurs, an important factor facilitating the growth of minority entrepreneurs is the number of organizations that promote and provide assistance. Examples include the Latin Business Association, Black Business Association, The National Center for American Indian Enterprise Development, Asian Business Association, and the Minority Business Develop- ment Agency, which is part of the U. S. Department of Commerce. Senior Entrepreneurs The number of seniors starting businesses is substantial and growing. Accord- ing to the U.S. Small Business Administration (SBA) Office of Advocacy, the percentage of individuals age 62 and older starting a business increased from 4.2 percent in 1988 to 5.4 percent in 2015.50 The SBA characterized the grown in senior entrepreneurs as healthy for the U.S. economy. This growth pattern is also no doubt welcomed by seniors who appreciate the challenge of starting a new business as a foundation for a new career. The increase in senior entrepreneurs is attributed to a number of factors, including corporate downsizing, an increasing desire among older workers for more personal fulfillment in their lives, and growing worries among seniors that they need to earn additional income to pay for future health care services and  CHAPTER 1 | INTRODUCTION TO ENTREPRENEURSHIP    49 other expenses. Many people in the 60 and older age range have substantial business experience, financial resources that they can draw upon, and excel- lent vigor and health, which make them ideal candidates to start businesses in many industries. In addition, the steady increase in life expectancy means that Americans are not only living longer, but are living healthier longer, and are likely to remain engaged in either a job or an entrepreneurial venture longer in their lives than earlier generations. Millennial Entrepreneurs A desire to pursue an entrepreneurial career is high among millennials. Accord- ing to a Bentley University survey, 66 percent of millennials have a desire to start their own business, 37 percent would like to work for themselves, and 25 percent would like to own a company. While encouraging, these statistics don’t fully reflect the direction entrepreneurial millennials are taking. Consider for example that in 2013, only 3.6 percent of all businesses in the United States were owned by someone under the age of 30.51 A 2016 study by EY and EIG tackled the question of what is constraining young people from becoming entre- preneurs. The findings affirmed the gap uncovered by the Bentley University survey. Millennials overwhelmingly (78 percent) consider entrepreneurs success- ful and more than half have considered starting their own business. The biggest obstacles preventing them from acting on their entrepreneurial desires are lack of finances, lack of desire to start a business, fear of failure, and a lack of knowl- edge of the business start-up process.52 Other factors may include the attrac- tiveness of corporate jobs, student debt, lack of savings, and risk aversion.53 There are many forces at work encouraging millennials, in particular, to con- sider entrepreneurship as a career. More than 2,300 colleges and universities in the United States offer at least one course in entrepreneurship at the under- graduate or graduate level. Although the bulk of entrepreneurship education takes place within business schools, many other colleges and departments are offering entrepreneurship courses as well—including engineering, agriculture, law, hospitality management, and nursing. Additionally, the activities offered by a number of organizations are encouraging college students to consider becom- ing entrepreneurs. These organizations range from the Dorm Room Fund, which is a student-run venture fund, which invests in student-­initiated start-ups, to Startup Weekend, which helps students organize teams and launch start-ups in 54 hours. A sample of these organizations is shown in Table 1.5. There are also resources available for non-college bound and/or non-college educated millen- nials who are considering an entrepreneurial career. For example, SBA Small Business Development Centers (SBDCs) across the United States are available to aspiring entrepreneurs. SBDC counselors provide encouragement and advice to people of all age ranges and offer a variety of free business consulting and training services. The Positive Effects of Entrepreneurship and Entrepreneurial Firms Entrepreneurship’s importance to an economy and the society in which it resides LEARNING OBJECTIVE was expertly articulated in 1934 by Joseph Schumpeter, an Austrian economist 7. Discuss the positive effects who did the majority of his work at Harvard University. In his book The Theory of entrepreneurship and of Economic Development, Schumpeter argued that entrepreneurs develop new entrepreneurial firms on products and technologies that over time make current products and technolo- economies and societies. gies obsolete. Schumpeter called this process creative destruction. Because new products and technologies are typically better than those they replace and the availability of improved products and technologies increases consumer 50    PART 1 | DECISION TO BECOME AN ENTREPRENEUR TABLE 1.5 Organizations that Help College Students Learn More about Entrepreneurship and/or Advance Their Business Ideas Organization Description Website Address 3-Day Startup Offers a 3-day program that helps students kick-start http://3daystartup.org companies and build entrepreneurial capabilities CEO (Collegiate Entrepreneurs’ Premier entrepreneurship network with chapters on more www.c-e-o.org Organization) than 240 college campuses CollabFinder This is a web platform that students across the country are www.collabFinder.com using to team up on start-ups and other projects. A business student, for example, can use the platf